Stocks looked like they were headed for a win Monday before a round of late-afternoon selling sent two of the three main benchmarks into the red by the close. Caution appears to be setting in ahead of Tuesday morning's key inflation update, particularly after recent data has signaled a resilient U.S. economy and lowered expectations for an interest rate cut at the next Fed meeting.
The Fed has indicated recently that it needs to see more evidence that the disinflation trend is intact before it starts cutting interest rates. Indeed, "the possibility of a March rate cut seems unlikely but coming into the summer months and back half of the year, we believe the disinflationary trend and other economic data will support such a decision," says Kevin Simpson, founder and chief investment officer at Capital Wealth Planning.
According to CME Group's FedWatch Tool, futures traders are currently pricing in a 16% chance for a quarter-point rate cut in March vs a 52% probability of one in May.
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As for the indexes, the Dow Jones Industrial Average (+0.3% at 38,797) notched a new record close Monday. The S&P 500 (-0.09% at 5,021), meanwhile, pulled back from its record close hit on Friday, while the Nasdaq Composite fell 0.3% to 15,942.
With stocks trading at or near record highs, Mark Hackett, chief of investment research at Nationwide, says investors may want to sit tight. "Right now, there's universal optimism and no risk embedded in the market, and it feels like we're a rubber band being stretched thin," Hackett says. "As soon as that rubber band gets a little nick in it, it could snap, leading to extreme volatility."
Nvidia briefly overtakes Amazon's market value
In single-stock news, Nvidia (NVDA) made headlines after the chipmaker's market value briefly surpassed that of fellow Magnificent 7 stock Amazon.com (AMZN). NVDA stock has been rallying hard over the past 18 months or so on optimism around its generative AI (artificial intelligence) chips, and it joined the trillion-dollar market cap club in June.
Today, Nvidia closed up 0.2% lower, bringing its market cap to $1.785 trillion. AMZN shed 1.4%, ending the day with a market value of $1.788 trillion.
Diamondback Energy will buy Endeavor Energy Resources
Elsewhere, Diamondback Energy (FANG) spiked 9.4% after the oil and gas exploration company said it will buy privately held Endeavor Energy Resources in a cash-and-stock deal valued at $26 billion. The news continues a consolidation trend in the oil patch, with blue chip stocks Chevron (CVX, +0.7%) and Exxon Mobil (XOM, +1.4%) announcing their own billion-dollar buyouts last fall.
"The merger, if completed, would make FANG the third largest producer in the Permian Basin, raising the company's production capacity by 76%, growing its net acreage by around 70%, while raising its gross core locations by 61%, which should enable FANG to see healthy cash flow generation, in our view," says CFRA Research analyst Jonnathan Handshoe, who reiterated a Buy rating on the oil stock.
Diamondback also said it is raising its annual dividend by 7% to $3.60 per share.
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